Paris Stock Exchange: Jerome has an incredible talent

US equity markets jumped yesterday after the Fed’s monetary policy decisions. The Dow Jones gained 2.88%, the S&P500 recovered 2.99% and the Nasdaq 3.41%. Before that, the clues seemed rather badly embarked, dragging their spleen from previous sessions like a ball and chain. The pattern in place is quite classic after an announcement by the Fed which is a little less aggressive than expected, as we are going to dissect together just below. It should be borne in mind that the interests of the financial markets do not always coincide with the interests of the real economy, or rather, their horizons may be different (which is a problem in itself, but which we are not going to cause today). So today’s crazy stock market reaction, but the world is not saved from the consequences of inflation.

Let’s start with some factual information:

  • The Fed raised rates by 50 basis points, bringing them from the “0.75% to 1%” range from 0.25% to 0.50%” previously. This is, as has been widely heard recently, the biggest turn of the screw since May 2000.
  • The Fed will start reducing its balance sheet on 1er June, by $47.5 billion per month. From September, the rate will increase to $95 billion per month. This is “tapering”, or quantitative tightening: the steam is reversed on the purchases of assets which have enabled the economy to weather the last storms. With the central bank’s pouch filled to the tune of $9,000 billion, it would take around 7 years to bring it back to its pre-2008 level, ie around $1,000 billion.
  • Rate hikes will continue, at a rate of 50 basis points per meeting, for as long as necessary to deflate inflation.
  • Jerome Powell estimated that the state of the American economy (growth, full employment, investment) makes it possible to cash in on these rate increases, which “won’t be fun“but who in the end will only”everyone will be better off“.

Very classic so far. But I was talking yesterday about the importance of form and that’s what explains the rise in the US indices last night: Powell ruled out the possibility of a 75 basis point rise at the next meeting, while part of the market feared it. Two remarks on this. First, the Fed had recently unleashed its “hawks” – its members most in favor of aggressive action – to imply that a 75 basis point hike was not to be ruled out. Any resemblance to a scheme allowing Powell to rule out this scenario a few days later is not entirely coincidental. Secondly, investors, who always seek to anticipate, like when their extreme scenarios do not materialize. This is a sign that the situation is closer to normal, that is to say their normality, not necessarily economic normality (which does not fit well with an annual inflation of 8.5%).

Obviously from a macroeconomic point of view, these rate hikes will cause major disorder in the United States by increasing the cost of borrowing, whether to buy a single-family home or to invest in the development of a business. But letting inflation get out of control would be even more damaging. Of the two disorders, the Fed has chosen the one it considers the least penalizing. Economists are predicting two further hikes of 50 basis points at the June and July meetings. Then others, less strong thereafter. The central banking theme, which is never far from the front of the stage, will keep the limelight today between comments on the Fed and the Bank of England’s decision on its own rates at midday. The BOE had started to raise rates ahead of others, as it was already facing inflationary concerns related to Brexit. She should continue to do so. As for the ECB, its next monetary policy committee is scheduled for June 9 (the May 18 meeting being only informal). Given the trajectories of inflation in the euro zone, it will also have to react, and sooner rather than later.

Another invasive news of the day, the publications of quarterly results of companies. Thursday is traditionally the busiest day in this area and this May 5 is no exception to tradition: dozens and dozens of announcements in Europe and the United States in particular. In all, a hundred companies weighing more than $10 billion, from A like Airbus and Anheuser-Busch Inbev to Z like Zalando and Zoetis.

European leading indicators are bullish this morning, in the wake of Wall Street. The Japanese market is still on vacation, while Hong Kong and Sydney gain around 0.8% at the end of the course. The CAC40 gained 2.4% to 6549 points at the opening.

Economic highlights of the day

The high point of the session will be the decision of the Bank of England on its monetary policy at 13:00. In the United States, the Challenger study on layoffs (1:00 p.m.) and weekly employment data (2:30 p.m.) are on the program. All the “macro” agenda here.

The euro rises to 1.0614 USD. The ounce of gold rebounds to 1900 USD. Oil is strengthening, with North Sea Brent at $110.16 a barrel and US WTI light crude at $107.10. The yield on US 10-year debt fell to 2.91%. Bitcoin is trading around 38,700 USD.

The main changes in recommendations

  • Amundi: Berenberg remains long with a price target reduced from 85 to 75 EUR.
  • Carrefour: Berenberg remains on the buy side with a price target raised from 23.10 to 23.30 EUR.
  • CGG: Portzamparc goes from buying to keeping, targeting EUR 0.81.
  • Elis: JPMorgan goes from neutral to overweight by targeting EUR 17.
  • Eramet: AlphaValue goes from reducing to accumulating, targeting EUR 156.
  • Geberit: Jefferies remains underperforming with a price target reduced from 473 to 461 CHF.
  • Gurit: UBS goes from short to neutral, targeting CHF 130.
  • Interpump: Berenberg remains long with a price target reduced from 67 to 60 EUR.
  • Korian: Berenberg remains long with a target price reduced from 35 to 34 EUR.
  • Novartis: Berenberg remains long with a price target raised from 85 to 90 CHF.
  • Ocado: HSBC goes from selling to keeping, aiming for 1000 GBp.
  • Roche: Jefferies remains long with a price target reduced from 450 to 430 CHF.
  • Sampo: Berenberg remains long with a price target raised from 51 to 52 EUR.
  • Securitas: Jefferies remains to be held with a price target reduced from 145 to 125 SEK.
  • Sensorion: Jefferies remains long with a price target reduced from 3.30 to 1 EUR.
  • Siegfried: Stifel starts the short follow-up targeting CHF 503.

In France

Business results:

  • Air France-KLM: the company exceeds its profit forecasts in Q1 thanks to the increase in reservations.
  • Airbus: Q1 adjusted EBIT is higher than expected.
  • ArcelorMittal: the results are higher than expected. But the group is reducing its global steel consumption forecasts.
  • Arkema: the chemist raises its 2022 forecasts after a solid Q1.
  • Crédit Agricole: the bank improves its results but provisions €389 million in Russia.
  • Legrand: reiterates its objectives for 2022 after a Q1 above expectations.
  • Societe Generale: the results are higher than expected. The bank warns that the cost of the war in Ukraine is reflected in a rise in bad debts.
  • Stellantis confirms 2022 guidance after revenue up 12% in Q1.

Important (and less important) announcements

  • Kering launches an employee shareholding operation.
  • Electricité de France is hoping for an agreement “in the coming months” for six EPRs in India.
  • Atos launches an innovative “Edge-to-Cloud” solution based on 5G and artificial intelligence.
  • Rumors continue about Ubisoft: the Guillemots could seek support to withdraw the file from the rating.
  • Valneva is launching a clinical trial evaluating its COVID-19 vaccine candidate as a heterologous booster.
  • 2CRSi signs a €4 million contract.
  • DBV Technologies places $15.3 million of ADS on the Nasdaq.
  • Cerinnov signs €2 million in new orders.
  • Vicat, ALD, Vilmorin, Umanis, CGG, Aurea, EURO Resources, MRM, Selectirente, Hexaom, Sogeclair have published their accounts.

In the world

Business results:

  • Anheuser-Busch Inbev: Adjusted EBITDA growth above expectations. The predictions are confirmed.
  • BAE Systems: the group confirms its sales and profit forecasts for the 2022 financial year.
  • BMW: Q1 earnings boosted by Chinese joint venture and high prices.
  • Contemporary Amperex Technology: the title falls heavily after its quarterly.
  • Deutsche Lufthansa: the rise in the price of kerosene weighs on the upturn in reservations.
  • eBay: the title fell by 6.5% out of session after Q1.
  • Enel: 2022 forecasts are reiterated after a solid Q1.
  • Shell: the group posts a profit in Q1.
  • Swiss Re: the reinsurer suffers a loss in Q1, after a big profit a year earlier.
  • Unicredit: the Italian bank takes a large provision of €1.3 billion in its Q1 accounts, in relation to Russia in particular.
  • Zalando: forecast lowered after losses in Q1.

Important announcements (and others)

  • Barclays and Standard Chartered general meetings disrupted by climate protesters.
  • Google targeted by a complaint in the Netherlands against the payment system of its Play Store.
  • The parent company of the NYSE, Intercontinental Exchange, will buy the computer group Black Knight at 85 USD per share.
  • Henkel will cut 2,000 jobs in its consumer goods division, to save €500 million.
  • Berkshire Hathaway rises to 15.2% of Occidental Petroleum.
  • Hangzhou Hikvision falls in Hong Kong after the threat of new US sanctions.
  • Nissan will invest more than $700 million in Mexico.
  • Dufry signs two new contracts with Salvador airport in Brazil.
  • Main results publications of the day: Shell, ConocoPhillips, Anheuser-Busch Inbev, Airbus, Petrobras, Zoetis, AXA, Shopify, BMW, Crédit Agricole, Coloplast, Henkel… The whole agenda here.

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